Options Trading Newsletter - Issue #25
CONVICTION!!! Towards success or failure, it is a matter of choice... This Newsletter Issue Is A MUST READ!!
CONVICTION...
What does it take to be convicted on something, a belief, a process or even a product/item?
To me it takes all or nothing, because there is never an in between. You are either convicted or not at all....
A very simple thing which takes this to test is some months back after an event which I attended, the speaker told us one thing. There are 3 areas in your life that you need to build and reinforce, #1 financial, #2 health and #3 relationship. So I thought to myself the same night, which ones of these that I needed to build and reinforce.
#1 - "financial" - I am 100% convicted and taken action, the process is running on plan.
#2 - "health" - although there is no sickness or any sort like that, I feel I need to take care more because I hardly exercise and eat healthy. So I decided that I need to start an exercise regime to improve this. The next 3 months, was the most torturing mornings I ever had in tens of years, as I need to go through the daily exercise regime. But I felt good with this process.
# 3 - relationship - I am doing fine here.
Guess which out of the 3, I started to fail miserably after being hyped up from the training event?
Well....obviously #2 - health.... which has taken me out of my comfort zone of being a lazy bum and fat bellied mid aged man with heaps of great food like KFC and pizzas to entice me. After one tired day from some late night work...I skipped one day exercise..., then the excuse for the second day came and you know what's the result after that....
I was back to the same state, no exercise but I lost some of the belly fat, not because I ate healthy, it was because I ate less due to the lockdown at home which was so darn long, I lost count...maybe 10th week or something. You know when you can move around freely, you tend to eat more...because it's just so flexible to pop onto a coffee shop to have breakfast, tea time or even supper....
Why did I fail at #2 health - which was my task to do regular exercise? I was basically not convicted enough to put "health" as a priority.... Although I truly understand the importance....my mentor always say that...
"you can make as much money in the world, but if you don't have the health to enjoy it, it means nothing"
I got to work on this for sure....
On the other 2 areas of "financial" and "relationship" why don't have a problem about my conviction? Because this 2 gives a direct result to my ability to provide to my family, care and love for them. Hence, I will do whatever it takes to make sure this is taken care of even if I need to work and put in many more hours and effort to ensure that....
On #2 health... as I don't have any major problem now.... I am not pushed to move forward. But I know it will come one day when I had to be put in an uncomfortable state where I have no choice but to improve this area just like when I was put into a situation where I had to improve my financial state to generate more income as I was not making ends meet back then.
So really...sit back and really think of these 3 areas and work on your Conviction on all 3 if possible and if not work on those which are needed most now and eventually on the rest.... because one day, you will be put to test on any one of these and if you had not built and reinforced them early....you may be put to unnecessary stress when the breakdown comes. People who had gone through these can share that the experience is unwarranted "avoid at all cost".... "Take Action Now, Be Convicted" in the areas which needs improvement....
MARKET UPDATE
SPX - A Move Beyond....
Okay...now I am put into a position to believe if there was even the slightest effort given to do a task or just a a shoddy piece of work given by my staff just to pass the assignment on time. Not that the work is wrong but it is just menial effort from the looks of it....
That was the exact feeling on SPX lastweek... to one extent, it had given the market a retracement people longed to see....but the speed of it getting down and up again makes it unbelievable.... it didn't even touched the 50 EMA like the previous few retracements...
It was like the market spooking us on last Monday with all red and then all green at end of day and next 2 days, blood spewing all over. Then one minute down and next up.... It was really a mind game last week....
Just one week before that I had let go my UNH position with a small gain as the trade was expiring 20 August but just looked what UNH done last week? It shot to all time high....would have been a good hefty bounty if I had waited some days later right? Well, the market likes to test and fool around with your mind...if you are long enough in this game you will be immune with its antics.... No complain but there were also many trades which I did not exit and as a result loss even more....
So what do we expect on S&P 500 next week? Chances are, it may grind higher slowly but not without volatility in between. People just don't like to see SPX drop.... unlike its peer in China which don't mind loosing a bit of market face and confidence temporally.... if you know the Chinese they are really very smart people....hint hint.... 😏
NDX
The US Markets are really a stingy lot, 2%+ retracement last week is nothing to shout about nor does it give the market any clues if that's it for now and we can continue to party on for higher highs.
Just keep an eye for the top line 15154 as NDX tried 3 times to breach this level and failed. The last 2 days we saw NDX had a strong runup with more than 100+ points increase per day. Hopefully that continues through next week as it is really a break or die position for many traders, what I really meant is if you are long NDX component stocks....the ranging situation will make it a slow painful death to see the theta decay. If you are premium sellers, it is a timing factor as the downtrend may be at a time close to your expiry and you suddenly see your profits wiped out in jiffy and forced to roll to following months playing the same situation over and over again. As long as you can still roll at a credit, you should be fine and have another opportunity to exit with a positive results.
Last week we saw that some of the Chinese stocks tried to reignite their boosters 🚀 sometime midweek and continued to Friday before they announced a failed launch.... LAUNCH ABORTED!!!!
If you have not been following this...let me recap, the China Government started a series of clampdown on China BIG Tech companies since last year started with the anti monopolistic action on Alibaba (BABA) in 2020 following through the abortion of ANT Financial (the financial arm of BABA) listing in November last year. These series of governance clampdown expanded to other companies such as Tencent, Meituan, Didi and the biggest ones on the direction to make education business non-profitable crashed down on stocks like TAL, New Oriental and Gaotu which lost most of their value in one day. It is a disaster more than 80-90% wipeout by just one new policy by CCP. So it is really scary for fund managers who have a risk mandate to comply and as a result, a lot of them started to dump all these China stocks which are deemed risky to their portfolio.
Apart from the Education stocks, fundamentally the business of the other China bigtech has not been fundamentally affected but the market price wise has dropped by more than 50%, similar to the situation when the pandemic struck in March 2020. Meaning, prices are once again pushed back to around 2-3 years price levels but the business has expanded or grown 2 years ahead. Is this an opportunity or still a threat???
BABA retraced 51% from its highs since. The next takeout level is Aug/2019 level of 152. From the weekly chart above, the steep flush down candle there may potentially be a retracement, but yet to be seen so far although there were some tries in the past 2 weeks. It may be the market makers last try to takeout the Aug/2019 stops before it makes a comeback. Watch this space!!!
CSP PORTFOLIO PERFORMANCE (UP 4.76%)
(Portfolio performance is on MYstylework's Portfolio and is not a recommendation to buy and for informational purposes only. You are adviced to seek your own professional adviser's views and perform own due diligence when evaluating any stock, options or investment trades)
The portfolio performance looks like a dejavu in May 2021 where it dropped to this level. In May, the drop was because of the big retracement in the US positions but this time round, the drop is because of the positions in the China positions.
After the May retracement, the portfolio went up back to 20%+ when the US market went back to all time high. So we are not worried so much for the current portfolio dip as the assigned/rolled China positions would eventually run-up again after all these clampdown issues of the China government passes.
Last week, PLTR went on fire 🔥🔥🔥 and prices was back up above the last assigned price of 25 in March 21. While being assigned, we continued to generate income through selling of covered calls besides the additional positions we did on CSPs. We would say, the total returns we received from this stock alone since last year is not too shabby. By year end we would potentially get 100 stocks of PLTR for free trading this strategy.
The other position on GDRX also improved significantly early last week before it lost half of its gains towards end week. Anyway, like PLTR, we are gaining premiums on both sides selling both calls and also puts. Kind of like a strangle already if you exclude the 100 shares we hold. Strangles are a very rich premium strategy but I tend to do less of these type of trades because of the huge risk if the price shoots up to the moon. But since we have the 100 stocks in hand, my risk will be limited as we would have the stock to deliver if that happens. We will not speak more on this and leave this strategy to another time as this portfolio is purely on CSP and CC.
REPAIRING CASH SECURED PUTS....
Like we said last week, Options Premium Traders are like mechanics. They can repair almost anything provided the damage is not like a total loss in a car accident. Patch here.... patch there, walla.... a broken trade brought back to life.... 🔧🧰
Last week, we covered repairing Bull Put Spreads. This week, we will cover repairing cash secured puts. We only repair cash secured puts if we do not want to get assigned the stock. The main reason, we do not want to get assigned the stock is that we do not want to hold direct shares and feels that the price may recover after expiry.
To repair the trade, what we do is roll forward the expiry at same strike price with a credit. We could hardly do it with a lower strike price as that will cause a debit payment most likely. As long as the strike is not breached and you roll at same strike, likely you can still get a credit.
If the price is already breached, you may need to pay a debit and that will of course eat into the earlier premium you earned in the current trade before rolling forward. Again we are buying time for price recovery like the GLD trade we explained last week where we rolled it 4 months over with 8x of rolling trades. The same you can do but of course, the capital stuck with the CSP may generate less premiums/time factor as you are taking a longer time now.
Of course, one strategy is to roll it to a shorter period like 1 week instead of 1 month if you can still get a credit for it. This is like you taking an exam and you have a few questions where you just "shoot" and you get a fluke pass after that. Because the intention is just to get the CSP to expire $0.02 more than the strike price on expiry. If the market price is very close to the strike price and you feel, you might get this fluke by extending 1 week or so, then it may be a possible solution. Just like you fluking your exams. You may of course fail.
Generally, we will review our strikes against market price closer to expiry to see if we need to take any action.
Sometimes, we also take the other view of just letting the stock get assigned if the market price is close to the strike. Because it may be that the prices is already oversold and due for a correction, so immediately after being assigned, we can chose to sell a call above the assigned strike to get a higher upside on stock price and at the same time earn more premium. Options Traders are also opportunist!!! As long as they know where to take those opportunities. 😂
TRADERS TALK
id you hear last week's Traders Talk?
I was speaking on why you should not invest in property but instead learn how to buy property. Is there a difference, yes for sure!!! Listen to Traders Talk Series 9 if you have not done so. View Past Traders Talk
I have even got the highlights here for a sneak peak...Sneak Peak Traders Talk
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DISCLOSURES
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options: https://www.theocc.com/components/docs/riskstoc.pdf
MYstyework is an Online Financial Literacy Educator and materials provided is solely by MYstylework and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. MYstylework, through its contents, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. MYstylework is not in the business of transacting securities trades or an investment adviser.